Politics & Government

FEMA Chief: Means-Test Flood Insurance Subsidies; Cautions on Delaying Rate Hikes

Fugate grilled by members of congress on flood insurance rates, delaying Biggert-Waters

The Obama administration's top emergency management official told a congressional panel on Tuesday that, if subsidies are restored to federal flood insurance policies, they should be means-tested, a solution that could mean insurance might still be unaffordable for some coastal residents.

Craig Fugate, Director of the Federal Emergency Management Agency, also cautioned against delaying the implementation of the Biggert-Waters flood insurance reform act, which could result in five-figure flood insurance bills for homeowners in coastal areas.

Some homeowners have said they would be forced out of their homes if flood insurance – required for those with federally-backed mortgages on their homes – becomes too costly.

"We would like to work with Congress to make this actuarially-based," said Fugate, responding to a question posed by Rep. Dennis A. Ross (R-FL), a member of the House Financial Services Committee, which held a hearing on flood insurance affordability Tuesday afternoon.

The law was passed with the intention of making the federal government's flood insurance program – which was $20 billion in debt at the beginning of 2013 – financially solvent and eliminating taxpayer subsidies to fund its operation, but since its passage, its namesake, Rep. Maxine Waters (D-MO) has said the immense rate increases projected by FEMA were not intended.

There has been an effort by some in Congress to delay the law's implementation and conduct an affordability study before raising rates, but Fugate said he would be "very measured" in supporting any such delay.

"We were not moving to needle very much on Katrina," he said, referring to recouping the amount expended on claims from the 2005 hurricane which struck the Gulf Coast.

Then Sandy hit, said Fugate, meaning delaying the Biggert-Waters reforms would cause it to take "a very long time" to get the program out of the red.

Rep. Joyce Beatty (D-OH) called the rate increases "unconscionable" and excoriated Fugate on FEMA's failure to conduct an affordability study, as required by Biggert-Waters, before new rates were promulgated.

"If you were concerned about affordability, why didn’t you find a way to do an affordability study?" asked Beatty.

"Staff were communicating with staff," replied Fugate. "I apologize that this didn’t happen."

Homeowners vs. Fiscal Woes

Members of the panel reiterated calls from constituents to delay, and ultimately change, the law in order to prevent them from losing their homes. Rep. Michael E. Capuano (D-MA), argued for keeping the insurance affordable for all homeowners, including those who own second homes.

"Most of the second homes owned in New England are trailers, small houses," Capuano told Fugate. "Florida, the Gulf Coast, the Carolinas, are full of second homes, most of which are owned by middle income people. Not only will you kill those second homeowners, you will kill the economies of places they’re in."

Fugate said Biggert-Waters includes provisions to open up the flood insurance market to private companies, which could mean potential relief, though he later admitted such hopes might not pan out.

"I don’t see a lot of the private insurance sector making up for the areas with the highest risk," said Fugate.

But, he said, "If they are able to write those policies cheaper, that’s better for everybody. When the rule change occurs, that will open that market up."

But homeowners, members of the panel said, are facing the loss of their homes within the next year.

"We’re acting as if a $5,000 or $10,000 cost to the average homeowner is nothing," said a visibly perturbed Capuano.

But there was little sympathy from the FEMA chief.

"For some people, they will not be able to come back with the new requirements," Fugate replied. "It does not mean communities will not survive."


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